High Street banks won their appeal today over unauthorised overdraft charges. The Supreme Court ruled in favour of the seven major banks and a building society.

They had challenged High Court and Court of Appeal decisions that the charges come under “unfair contract” rules and are therefore subject to regulation by the Office of Fair Trading.

Today’s result was awaited by tens of thousands of customers whose refund claims have been frozen while the test case went through the courts.

At a hearing in June, the Law Lords, who then sat at the House of Lords, were told free banking was only made possible by the charges levied when customers went into unauthorised overdraft.

It is estimated that on top of the customers whose refund claims have been frozen, up to eight million people may have paid unauthorised overdraft charges since July 2001, but have not yet submitted a claim to get their money back.

Customers who go into unauthorised overdraft or breach their agreed limit can be charged £35 or more for a single bounced payment.

Campaigners claim the actual cost to the banks could be as little as £2.50.

If the banks had lost the test case, it could have cost them £2.6 billion a year in lost revenue and led to their having to make refunds of up to £1 billion.

Before refund claims were frozen, some banks had already paid out more than £559 million to customers who complained about “rip-off” overdraft charges.

The test case was brought jointly by the OFT and Abbey, Barclays, Clydesdale, Halifax Bank of Scotland and Lloyds TSB, which are now part of the same group, HSBC, Royal Bank of Scotland Group and Nationwide Building Society.